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Vincent A. Calarco
Fellow Shareholders
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Our first full year as the new Crompton Corporation was both satisfying and disappointing. While I am pleased to report that we made significant progress in achieving our company's strategic objectives in 2000, I regret to report that we did not meet our financial performance targets for the year.
We were successful in restructuring, strengthening and integrating our core businesses to reduce costs, improve efficiencies and to assure their long-term success. External factors, including an unprecedented surge in energy and raw materials costs, together with unfavorable foreign currency shifts, masked much of our company's progress for the year.
Our net sales in 2000 were $3.04 billion, slightly below the prior year's adjusted sales of $3.09 billion. However, excluding the impact of foreign currency translation, sales for the year increased by one percent. Operating profit before special items of $291.5 million in 2000 was up four percent from adjusted 1999 operating profit of $281.6 million. Net earnings before special items were $104.3 million, or 91 cents per share, excluding a plant closing charge. Including this after-tax charge of $15 million, net earnings were $89.3 million, or 78 cents per share, in 2000, compared to a net loss of $175 million, or $2.10 per share in 1999, the year Crompton & Knowles and Witco Corporation merged to form the new Crompton Corporation.
External factors - rising raw material and energy costs, and the impact of negative foreign currency, especially the Euro - impacted us by $60 million in 2000, fully offsetting the $60 million in savings we promised and delivered through our worldwide merger synergy cost-reduction program. In fact, without these external factors, our company's performance last year would have been in line with original financial forecasts for earnings per share of $1.20, a full 29 cents per share higher than we reported.
Our ability to hold sales and to post operating profit gains before special items in 2000 - while we integrated, consolidated and restructured our businesses and product lines in a difficult environment - is testament to Crompton's 8,300 employees. They truly understand and have worked to implement our company's guiding principle that customers come first. They are dedicated to combining the most advanced and differentiated technical offerings with the most creative and responsive applications experts to provide our customers with not just products, not just services, but genuine solutions that help them succeed. This commitment is embodied in our corporate tag line: Crompton - Finding Better Solutions, and it guides our thinking in everything we do.
During 2000 we completed a strategic review of all of our businesses. We examined market positions, technological strengths, production advantages, and new product-development opportunities. We also measured every business against financial yardsticks which would qualify them as true specialty chemical businesses with superior operating profit margins, growth and returns on capital. Finally, we studied the degree to which our operating businesses complemented each other and would help drive our unifying corporate objective of Finding Better Solutions.
The results are compelling. Our businesses are uniquely positioned to serve key end-use industries with a breadth of technology, expertise and market coverage unmatched by other suppliers. From automotive and transportation, to the construction/home furnishings markets, from agriculture to packaging and apparel, Crompton adds value and offers distinct advantages for our customers with performance-enhancing products. These capabilities, supported by specific examples of successful partnering with customers, are briefly illustrated in the individual business review sections of this report, and are discussed more extensively on our corporate web site www.cromptoncorp.com.
To support our businesses and to reinforce their growth potential, in 2000 we invested $155 million in capital projects primarily to expand capacity, improve production efficiencies and maintain environmental standards. Our largest single investment was $50 million for increased production of silanes at our facility in Termoli, Italy. This capacity, due to come on-stream this spring, will enable us to meet strong demand from key customers who produce the newest generation of energy-efficient tires. Our 2001 capital budget of $155 million will continue to support growth plans in our core businesses.
In line with our strategy to focus resources on the core businesses with the greatest sustainable competitive advantage, in 2000 we initiated the process of divesting our Industrial Surfactants and Refined Products businesses. The proceeds will be used primarily to repay debt and to repurchase stock.
We integrated our operating businesses to achieve maximum merger synergies and efficiencies in production, marketing and sales, saving $60 million in costs on an ongoing basis;
We completed a strategic review of our businesses, identifying core operations and initiated divestments to monetize non-strategic assets;
We closed and consolidated less-efficient facilities;
We restructured management systems to push down decision making, authority and accountability, improving customer responsiveness;
We regained customers and extended our market reach;
We harmonized pay, benefits and incentive compensation packages in the merged corporation to align the interests of our employees with those of our shareholders;
We invested for growth; and
Our operations performed strongly in an unusual and difficult year.
These achievements reinforce our confidence that we are on course with our strategic initiatives and that our business and market actions will enable us to meet our objectives. Our primary goal is to deliver consistent top-line growth accompanied by sustainable annual earnings per share growth of 10% over the long term. We're equally confident that we will meet our long-term objective of increasing our return on capital employed to 15% within five years.
While we are focused on accelerating Crompton's growth through coordinated marketing and customer service efforts, we remain concerned about the worldwide economic outlook. Present conditions do not permit us to think otherwise, as energy and raw material costs remain unusually high and currencies remain volatile. While lower interest rates could be expected to stimulate a resumption of economic growth, we will continue to seek and identify more opportunities for cost reductions, improved capital utilization and increased efficiencies throughout our organization while working to enhance our company's effectiveness in the marketplace.
We believe that our dedication to hands-on management, combined with a strategy of employee empowerment and customer focus will, in the long term, create significant shareholder value. We appreciate and value your support and will keep you informed of our progress.
Respectfully yours,
Vincent A. Calarco
Chairman, President and
Chief Executive Officer
March 12, 2001 |
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